The ISM manufacturing index for March dropped to 46.3 from 47.7 last month and is still in contraction. In fact, all the 18 sub-components of the ISM manufacturing index are in contraction. Only 6 improved in March, making this the lowest reading since the end of the Great Recession in 2009 (excluding the early pandemic).
This sounds bad, yet global steel demand is at an all-time high, according to Swedish steel producer SSAB. The demand is mainly coming from the defense and infrastructure industries. Lost production in the Ukraine and Russia hurt supply which brings upward price pressure.
- Industrial production for February ticked down, and ITR has not changed its forecast. ITR uses a long-term 12-month moving average [MMA] and expects a decline to start late this year and go through late 2024. The decline will be mild due to stable consumer and business finances, backlogs, and onshoring trends. It then calls for the 12 MMA to rise in 2025.
- Shipments of “core” non-defense capital goods ex-aircraft (an essential input for business investment in calculating GDP and a leading indicator for manufacturers) were unchanged in February after rising 1.1% in January. If unchanged in March, these shipments would be up at a 2.0% annualized rate in Q1 versus the Q4 average, and good news for Q1 GDP.
- Orders for core capital goods (excluding aircraft and transportation), which will lead to shipments in the future, were also unchanged in February after rising 0.7% in January. Producer prices for capital equipment are up 7.1% during the same period, which means that while orders are still rising in dollar terms, they are declining when adjusted for inflation.
- Car sales based on Q1 are estimated to be 14 million annualized. Based on estimated March sales, they are at 14.8 million. That is up from 13.7 last year. The supply chain is improving and dealership inventories are higher but still below average pre-pandemic levels.
- Aircraft production continues its upward trend.
- Construction is weird. Despite higher mortgage rates and home prices, sales continue at a decent pace, and new permits are up for single homes. There is still a housing shortage while nonresidential is improving. Still, total construction spending is up by 5.2% year-over-year.
- The Shapiro Nonferrous Scrap Activity Index for March, which tracks our daily purchases for the duplicate accounts across our 10 locations and a diverse industrial base, fell 3% from February and is flat from our 12-month trailing average.
CHINA AND THE WORLD
Services rebound and manufacturing is barely in expansion
Many Chinese consumers are avoiding big-ticket purchases amid an uncertain economic outlook. China manufacturing PMI for March dropped to 51.9 from 52.6 in February. The Caixin index fell to 50 from 51.6. China’s services sector reached its highest level in over a decade in March. This was a reaction to the end of three years of Covid restrictions as Chinese consumers were heading back to stores and restaurants.
China’s real estate market is improving slightly but still has major problems with too much inventory and buyers who are not confident with the economy. Also, with lower mortgage rates, many Chinese pay down their mortgages instead of spending. China’s manufacturing steel demand for the January/February period fell to its lowest level in 30 months. Some believe that infrastructure spending will help if it can be funded.
China will continue to have economic issues. GDP forecast is 5% growth after last year’s covid restricted 3%. But the government controls everything ,and ultimately, the party’s absolute priority is maintaining social stability. If the economy is slower this year, China has the power and the money to change policies when President Xi. The Zero Covid changed overnight without any warning, and so can economic policies.
Eurozone core inflation, which excludes food and energy, hit a new high of 5.7% in March, up from 5.6% in February. Separately, the Eurozone final March manufacturing PMI came in at 47.3 from February’s 48.5. Germany’s IFO, manufacturing index, rose in March for the fifth straight month to 93.3 from 91.1 last month. While still in contraction, it is looking better.
Overall demand for primary aluminum this year through February is very close to last year. There is a higher demand for auto and aero alloys, while extruded products are down almost 10%, and can stock is also down. The supply side is also in balance although inventories are low. This is keeping LME prices in a tight band.
Ed Meir from Marex states, “Chinese production has been trending lower on account of environmental and power restraints, while domestic consumption is starting to pick up and should therefore soak more of the metal that otherwise would have been exported.” The negative Chinese real estate market will continue to be a major factor on metal demand and prices.
Harbor believes that world primary aluminum will be in surplus this year and next while the demand is dropping. World demand is down 2.4% year over year for the Jan-Feb period and down 6% for the western world in the same time period, according to Harbor. The only bright spots are automotive and aerospace. Can stock and common alloys have been soft.
Metal prices trended down in March. Prime aluminum prices fell 3 cents month over month, mainly due to the Midwest premium drop as the LME held steady. Prime scrap prices fell along with the prime. The primary aluminum mills and extruders have plenty of metal and have decreased their spot buys for common alloys and extruded scrap. While the primary scrap demand is lower, our diverse industrial scrap base continues to be steady and has not fallen off.
Secondary aluminum was steady. Meanwhile, secondary 380 aluminum, the most common alloy, is selling for more than 10 cents over primary. This extraordinary circumstance, which has rarely happened, is mainly due to the high cost of additives like silicon and copper.
Copper prices also fell slightly. Nickel and scrap stainless steel prices were down 10%. Steel prices are the same.
GOOD NEWS/BAD NEWS
The ChatGPT King Isn’t Worried, but He Knows You Might Be
AI is artificial intelligence. AI has been compared to the start of electricity. Computers will be capable of teaching other computers to “think” at exponential speed. This will enable computers to solve scientific and health problems that were not possible years ago. Unfortunately, it could also put the knowledge of making very bad things happen when bad people use it. It is very VUCA.
ChatGPT came out a month ago. It has already attracted 100 million queries. Microsoft put in a billion dollars into ChatGPT 4 years ago and is now up to $13 billion. I am attaching an article about the founder of ChatGPT and what he believes will happen with AI. The problem is no one really knows.
Metal Processing: Shapiro’s Green Initiative
Shapiro collaborates with sustainability partners and ESG consultants to improve sustainable recycling, metal processing, and prime materials recovery. Our sustainability management software, automated materials handling, and sustainability analytics help us create efficient, environmentally friendly systems with ESG integration. Together, we can revolutionize the industry and make tomorrow greener.
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